First American Helps Lenders Value Second Liens
First American Subordinate Lien Outsourcing here, a unit of the First American Corp., has created a new scoring model to measure the risk/reward potential for second-lien loans.
The company believes the second-lien scoring model, known as SeLi, can be used to determine the true trade value, ability to collect, potential to revive the loan, loss recovery and loss severity. First American's extensive property and consumer databases are used to determine the SeLi scores. The company is unveiling the new product at the MBA National Mortgage Servicing Conference.
Brett Benson, a vice president and managing director at First American Subordinate Lien Outsourcing, told MSN that the scores will help loan servicers and investors optimize default operations by leveraging data and analytics. It will also help lenders estimate the value of second liens.
With many banks and other lenders suffering from risk exposure in the second lien market, some experts expect to see the volume of second lien transactions increase as some companies seek to minimize their loss exposure while others seek to take advantage of distressed selling.
Traditionally, Mr. Benson said default management on the second-lien side of the business has been process driven, with servicing shops going through default management processes without the same degree of analysis that would be used to judge the loan's collection and loss potential as would be employed on a first lien loan. That's partially because the first-lien holder typically drives the foreclosure process if a homeowner defaults on their mortgage debt.
"In terms of second liens, there seemed to be a gap there in terms of how things are serviced," Mr. Benson said.
But by using SeLi, First American executives believe lenders can attack second-lien defaults more quickly using analytics that help them determine what the collection potential is.
The SeLi score, derived from First American's huge loan and property databases, assesses issues such as the status of the senior mortgage, equity in the home, the payment history and the age of the loan to derive a score. "You almost can't start a loan without First American touching some part of it," Mr. Benson said.
Today, fewer and fewer home equity loans are "piggybacks," originated at the same time as the first lien and held by the same lender. Increasingly, seconds are loans that were originated later or were "orphaned" when they were sold in the secondary market separately from the first mortgage.
The SeLi score, Mr. Benson said, becomes like a credit score, used at the loan level. It allows second-lien servicers and investors to assess their risk exposure in less than 48 hours, a process that used to take much longer as the lender tried to track down what was happening with the first mortgage.
He said it's important to attack second-lien delinquencies early, because equity can evaporate fast. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/